After Trump Tweets, Pakistan Switches Trade Basis from US Dollar To Chinese Yuan

Only one day after President Donald Trump accused Pakistan of protecting terrorists in a fiery tweet, Pakistan announced it was no longer going to use U.S. dollars with its major trading partner to the north. Is this another step towards the demise of the dollar?

From now on, any trade between China and Pakistan will be accomplished using the Chinese Yuan.

That one switch is worth over $60 billion in trade that a few days earlier would have been conducted with U.S. dollars.

The trigger for the move was one of President Trump’s infamous tweets. On January 1, he issued a statement on Twiter that:

“The United States has foolishly given Pakistan more than 33 billion dollars in aid over the last 15 years, and they have given us nothing but lies & deceit, thinking of our leaders as fools. They give safe haven to the terrorists we hunt in Afghanistan, with little help. No more!”

Nikki Haley, the U.S.’s Ambassador to the United Nations, held a press conference later which backed up what Trump had shot out in the tweet. She also confirmed the U.S. was not going ahead with a planned $255 million in assistance to Pakistan.

The background for the blast from Trump is that many in Washington have asserted for some time that Islamabad has allowed the Haqqani network, one of the Taliban militant group’s affiliates, to pass across Pakistan’s borders with Afghanistan with little intervention. Islamabad in return has fiercely denied the allegations, and has countered that the U.S. seems to ignore the many sacrifices Pakistan has had to make in dealing with terrorism.

Rather than respond with counter-tweets or equally childish behavior in return, the Pakistani leadership instead apparently quietly met in its own quarters, decided it had enough with this version of U.S. “leadership”, and issued their own statement the very next day. That statement, provided via the State Bank of Pakistan (SBP), announced that they had now put in place arrangements for all future bilateral trade and investment between Pakistan and China to be done using the Chinese currency.

With China accounting for around 28 percent of Pakistan’s import business, replacing the dollar with the yuan puts a significant dent in the effective value of the dollar on the world stage.

Pakistan also happens to be the focus of the ~$60 billion China Pakistan Economic Corridor (CPEC), a set of infrastructure projects Beijing sees as critical to its “Belt and Road” global economic initiative. The $255 million the U.S. now refuses to provide to Pakistan is only “pocket change” compared to what China is pouring into the region.

For its part, China has issued statements of support for what Pakistan has done to combat global terrorism, saying that Islamabad “made great efforts and sacrifices for combating terrorism”.

There is therefore little surprise as to why and how fast Pakistan would have made its decision to turn away from Washington in a far more significant way than what the U.S. did by pulling its foreign aid.

The greater threat to the U.S. dollar is China's gold-backed Petro Yuan and oil futures market that it has developed but held back from officially launching.  China is well aware of what has happened to other nations who challenged to the supremecy of the U.S. dollar. Saddam Hussein was taken down after he started selling oil in Euros. Ghadaffi was Muammar Gaddafi